There is no doubt that the gap in living standards between places like Basingstoke and Blackburn is huge. And there is no doubt that Labour is committed to regeneration: no surprise, with recent Labour cabinets including MPs for Hull, Stockton, Blackburn and so on.

But commitment does not guarantee results. John Prescott was sincere in promising fewer cars, but he failed to deliver.

So too with regeneration. Despite massive spending, the evidence is that "regeneration spending towns" have slipped back relative to both the national average and Britain's most successful towns. Regeneration policy has failed to regenerate towns, however hard ministers may pretend otherwise.

The reality turns out to be pretty stark. Margaret Thatcher famously declared that "you can't buck the market", we find that you can't buck geography either. Cities such as Liverpool and Hull, for example, were perfectly placed for economic success in 1875 when Britain was a maritime nation, and imports, exports and even trade within Britain often went by sea. But today air, road and rail transport dominate, and suddenly places like Reading and Milton Keynes – awful locations in 1875 for business – beat our coastal cities hands down. No amount of regeneration spending can alter that basic reality.

The people of Liverpool know this: almost half of them have left since the 1930s. No doubt many more would leave now if property were as cheap in Letchworth or Leatherhead as it is in Liverpool.

If we really want to give people in Liverpool, Sunderland, and so on the opportunities that people in most parts of the south-east take for granted, we need to let many of them move to the south-east. Just as the north-west was a great place for a textile industry in 1875, so the south-east is the best place for most high skilled service sector jobs – near to Europe, and (via Heathrow) the rest of the world.

We must stop reserving land in the south-east for low productivity industrial use. If we converted half of the industrial land into housing we would gain 200,000 houses, whose residents could work in the economic powerhouse that is London. The rise in land values would be around £25bn, much of which could be captured by the state and used to pay for the necessary infrastructure and for tax cuts.

We also need to expand London – making it a mile bigger would create 400,000 new houses. And to think about adding as many as a million houses in Oxford and Cambridge, along the model of America's Silicon Valley. The massive expansion of places like Liverpool and Manchester in the 19th century is part of how Britain became so successful then, offering better opportunities than its European neighbours. We can learn from history.

But for a variety of reasons not everyone wants to move, and so declining towns will continue to matter. We need to accept that centrally directed regeneration funding has failed. Let us try trusting local people for once. Instead of the "spaghetti bowl" of national regeneration funding streams, let us roll up those funding streams and hand the money to local, democratically accountable politicians. Of course they must be monitored and assessed, but let local people decide whether the outcomes constitute success or failure.

We need to accept that geography matters. We need to allow more internal migration. And we need to allow local councils freedom to develop policies that work. Then, and only then, will we have a chance of narrowing the gaps between different parts of Britain.